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An advertiser that monitored online activities of consumers even after they'd opted out of its tracking system agreed to stop after settling allegations by the Federal Trade Commission that accused it of deceptive practices.

Chitika Inc., which acts as a middleman between websites and advertisers, was investigated by the FTC as part of ongoing campaign to protect consumers' online privacy.The company, whose website claims it delivers three billion ad impressions a month, buys space on websites and contracts with advertisers to place small text files commonly known as "cookies" on those sites.

Chitika also engages in a technique known as behavioral advertising, inserting cookies in consumers' browsers to track their online activities, including Internet searches and sites visited. Chitika then uses that information to serve up targeted ads.

The company's privacy policy states it collects data about consumers' preferences, and allows them to opt out of receiving targeted ads or having cookies placed in their browsers. The privacy policy includes an "Opt-Out" button that activates the following message when clicked: "You are currently opted out."

But according to the FTC complaint, from at May 2008 through February 2010, Chitika's opt-out policy lasted only a scant 10 days -- a fact not disclosed in the privacy policy. Once the 10 days were up, Chitika reinserted tracking cookies in the browsers of consumers who opted out and began serving them targeted ads again.

The FTC accused Chitika of making deceptive claims about its opt-out mechanism, violating federal law.

The FTC settlement forbids Chitika from making misleading statements about the extent of its consumer data collection and the degree to which consumers can control the collection, use or sharing of their data.

The settlement also requires every targeted ad from Chitika to include a hyperlink to a clear opt-out mechanism lasting five years.

Chitika will also be required to destroy all identifiable user information collected while the 10-day opt-out policy is in effect. Chitika must also alert all consumers who previously opted out that their actions were only temporarily effective, and should opt out again.